Industry News by Nemesis

Zimbabwe: Merger Unlikely to Change Diamond Fortunes

January 23, 2016

A GOVERNMENT decision to consolidate diamond mining companies into the Zimbabwe Consolidated Diamond Corporation (ZCDC) is unlikely to create transparency and accountability in the sector, especially given that the same old players will remain integral to the new corporation, analysts have warned.


Government, perturbed by alleged pillaging of alluvial diamonds and unaccountability by mining companies in the extraction of the gemstones in Chiadzwa -- a vast diamond mining field allocated to companies linked to the security services sector, the Chinese military and political cronies -- announced last year that it would force all diamond mines into ZCDC.


The diamond mines operating in Chiadzwa include Mbada Diamonds, Marange Resources, Anjin Investments (which is jointly owned by the Chinese military and their Zimbabwean counterparts), Diamond Mining Company, Jinan, Rera, Kusena and Gye Nyame. Government has an interest, through the Zimbabwe Mining Development Corporation (ZMDC), of at least 50 percent in the mines except in Marange Resources and Kusena Diamonds, which it wholly-owns.


The consolidation, according to Minister of Mines and Mining Development, Walter Chidhakwa, is meant to foster transparency and accountability among Chiadzwa diamond mining companies which had failed to remit any proceeds to government coffers despite reports of megabuck earnings from diamond sales.


He insisted that the move would curb revenue leakages at diamond mines and increase efficiency in the sector.


In his announcement, Chidhakwa said no diamond mining company would be exempted from the consolidation, in which government would have a 50 percent stake while the mining companies would share the balance.


This meant that even Murowa diamonds, which had been majority-owned by Rio Tinto Plc, which later sold out on jitters from the government's announcement, would be part of the ZCDC.


Chidhakwa said government was not prepared to negotiate and would kick out any firms unwilling to participate in the initiative.


However, the Financial Gazette reported last week that a company linked to Russians and the ruling party ZANU-PF had been exempted from the planned merger.


Unlike Murowa, the Chiadzwa diamond companies had not invested in the mining of conglomerate diamonds. They had mined the alluvial diamonds, raking billions of dollars which have so far not been accounted for. The alluvial diamonds ran out two years ago, leaving the companies desperate for new revenue streams.


They had also failed to invest in exploration for diamondiferous kimberlites for exploitation when they exhausted the alluvial diamonds.


In this case, the delinquent firms are likely to benefit from the merger, as they will likely bring nothing to the table beside mining claims handed to them by government.


Murowa will bring in claims with proven resources, as well as experience in the mining of conglomerate diamonds.


The Chiadzwa companies had earlier asked government to provide them with more concessions for alluvial diamond mining.


Analysts said the consolidation would likely change nothing considering that the diamond companies were already under government control through the ZMDC. Moreover, the fact that government has retained all the investors it accused of wrong doing meant that there was unlikely to be a shift in the corporate mindset of the new institution.


According to the ZMDC website, government through the ZMDC, already owned 50 percent of Mbada Diamonds, Diamond Mining Corporation (50 percent), Jinan (50 percent), Marange Resources (100 percent) and Kusena Diamonds (100 percent). It is only in Anjin that ZMDC controls 10 percent but another 40 percent in Anjin is controlled by an obscure government organ.


Even in those companies government held controlling stakes, it had equally failed to create transparency and accountability, analysts warned.


A ZMDC spokesperson, Charity Tambandini, said ZMDC would not be involved in the new venture and declined any request for a comment.


Economic consultant, John Robertson, said there were very little prospects of success for the consolidated diamond entity.


Government, he said, did not have the financial wherewithal to prop up the merged entity. He said unlike alluvial diamond mining, more resources would be required to start deep mining for kimberlites, which would require exploration to find.


Moreover, the methods required to conduct deep mining were different and more costly than those required to do alluvial mining, he said. Deep mining required more knowledge and money and under the current legal framework, companies equipped to do such mining would not find the investment environment attractive.


He said allowing government to own 50 percent of the merged entity without injecting any capital would simply ruin the enterprise. The companies that were being integrated into the ZCDC also did not have the capital to put into the business, he said.


"There is too much risk associated with deep mining and investors require incentives," Robertson said.


A geologist and former manager at Murowa diamonds who requested not to be named said government was going to struggle to attract credible investors for its ventures in the absence of credible exploration data.


He said: "No one knows the quantity and quality of kimberlitic diamonds at Chiadzwa and it is too risky for investors to sink money in a venture whose profitability is not guaranteed.


"It is clear that government and its existing partners have no capacity to conduct deep mining and the formation of the Zimbabwe Consolidate Diamond Corporation is a ploy to award new concessions for alluvial diamond mining to cronies."


Government must reform its ownership and investment laws in order to attract credible diamond investors if the diamonds in Chiadzwa are to benefit the nation.


Source: All Africa

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